95% LTV Mortgage Guarantee Scheme
In April 2021 the Government announced the funding for the 95% LTV Help to Build Mortgage Scheme, whereby it hopes to encourage and assist more people to build their own homes. The scheme is supported by £150 million in funding spread across 4 years and is hoped that it will assist between 30,000-40,000 new homes every year in the UK.
Successful applicants will be able to fund their self build project with just a 5% deposit together with a Government backed equity loan.
The scheme will work very similar to the shared equity help to buy scheme with differences being that the scheme will be based on the build cost and the government share would only be paid to the lender on practical completion. In practice the proposal would be that the self builder would secure a mortgage with a 5% deposit with the mortgage lender then providing 95% of the funding. On completion of the build the lender would then pay the 20% to the lender and in turn reduce the overall lending to 75%.
An action plan provided by the government indicates that the full prospectus will be made available in spring and applications for the scheme will be available from late summer.
WHY HAS THE SCHEME BEEN INTRODUCED FOR 95% MORTGAGES?
During the Covid 19 pandemic virtually all lenders withdrew their higher loan to value mortgage products leaving those with what is regarded as a smaller deposit, unable to obtain a mortgage. Those providers that did continue to offer them, mostly only did so where third party assistance was available such as a family member to help with the “deposit” by means of other security or guarantees.
Whilst we have seen a healthy return of 90% loan to value options, the 95% sector still remains scarce. The government has therefore introduced the 95% LTV Mortgage Guarantee Scheme to encourage lenders to re-enter this market.
HOW DOES THE MORTGAGE GUARANTEE SCHEME WORK?
The guarantee element of the scheme is provided by the government for the lender only and as such it is hoped this will give the lender a greater appetite for providing mortgages at 95%. Whilst this guarantee proved some assurance to the lender, it does not therefore mean that they will take any different view on their assessment of your ability to borrow the funds. Affordability will still be an important factor as will credit history.
Risk is always a factor that lenders need to consider, and to offset the regarded higher level of this when lending at 95%, together with the higher capital allowances lenders have to cater for when offering the higher loan to value schemes, expect the rates available to be that much higher than those offered at 90% and below. Also, not all lenders will participate so there may be a restricted level of choice.
WHO IS ELIGIBLE FOR THE GOVERNMENT GUARANTEE SCHEME?
The scheme is open to first time buyers and homemovers alike, and for any property including new builds and those on resale. This differs to the current popular Help to Buy shared equity scheme where this is now restricted to first time buyers and new build properties only. The 95% LTV Mortgage Guarantee Scheme does have a maximum purchase price of £600,000.
HOW CAN I FIND OUT MORE ABOUT 95% MORTGAGES?
As with many schemes designed to assist people to purchase their homes, there can be many elements of criteria and numerous sources of information. Here at Just Mortgage Brokers, we understand how confusing this may all appear and this is why we have fully trained advisers who are fully versed in all the schemes available, including the 95% Mortgage Guarantee Scheme. Why not contact us today and we will be pleased to run through all the ins and outs with you.